When fashion companies have too much unsold stock, they often use discounts to clear it out and make room for new clothes. It’s not always an ideal solution. Discounts squeeze profit margins, and too many promotions can leave shoppers reluctant to pay full price again.
So when large numbers of stores in several countries closed through spring due to Covid-19—and many shoppers paused spending on non-essentials—clothing retailers found themselves with a big problem. They had a season’s worth of unsold clothing, plus orders they had placed months earlier still arriving at their warehouses. To solve the problem many are expected to rely on discounts, but some companies are taking a different path, choosing instead to stash their unsold inventory and try selling it next year once it’s in season again.
On a call with investors today, John Idol, CEO of Capri Holdings, which owns Michael Kors, Versace, and Jimmy Choo, said that’s the route the company will take with much of its summer inventory, which never even made it to stores. “We’re repurposing that for spring season next year,” he explained.
Gap told investors of a similar plan earlier this month, saying it would “pack and hold” basic items that were in stores as well as summer products that never made it to stores before the pandemic. The company hasn’t specified how much inventory it will treat this way, though CFO Katrina O’Connell noted on the investor call, “I will say we’ve not had levels of pack-and-hold like this before.” The Wall Street Journal reported that PVH Corp., parent company of Calvin Klein and Tommy Hilfiger, is holding 16% of its inventory to try selling it again later, and Carter’s, owner of children’s clothing brands such as OshKosh B’gosh, will stash away 19% of its inventory.
There are limits on what sort of stock can be redeployed in this manner. Generally it’s only basics, since they won’t become outdated as fashion’s trend cycle chugs inexorably along. Adidas and British retailer Next are both holding over such items, according to Reuters.
Items meant to capitalize on seasonal trends are tougher. “This is not like wine that gets better with age,” Manny Chirico, CEO of PVH Corp., said during an investor call in April. “Your inventory gets worse.”
Holding stock may not be an option for smaller companies without much cash on hand, such as independent designer labels. They may need to sell their inventory so they have enough cash to produce the next collection.
But for those that can stow their unsold clothes, it’s an attractive option in the current circumstances. Ralph Lauren told investors in May that one benefit of its “classic timeless aesthetic is that many of our iconic styles resonate with consumers season-after-season.” The company said it would bump a portion of the clothing in its warehouses into future collections.
Idol was optimistic about Capri’s brands too, despite their leaning toward fashion rather than basics, and noted that retailers haven’t been holding as many sales as might have been expected. “Many of the fashion companies, including ourselves, really decided that the worst thing we could have possibly done is to have giant promotions,” he said.